UP to 11 million Britons face reduced pension payouts because of a funding crisis that is set to last for 20 years.

Employers will struggle to have enough cash to meet their liabilities, with funding levels for defined benefit plans, like final salary schemes, worse now than 10 years ago, according to City pension consultants Redington.

Industry giants including BT, energy businesses Royal Dutch Shell and BP are among those to have pension deficits that run into billions of pounds.

In fact, given the funding pressures, defined benefit schemes could become a thing of the past, said pensions consultant Malcolm McLean, of Barnett Waddingham.

He said: “There is a real problem – they may be less generous in the future.

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Altmann... Protection is in place

“They are unaffordable for many employers. Primarily we are living longer and they are increasingly expensive to guarantee.”

If a firm cannot meet the requirements of its pension schemes, a protection fund is in place, he added.

But “the fund will pay only 90 per cent of the entitlement. That will mean people will lose out”.

The research body Pensions Institute has previously warned 1,000 private-sector pension schemes, including 25 of the largest in the UK, are “highly unlikely” to pay their members’ pensions in full.

That was because of the situation with underfunding and financial stress.

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Defined benefit schemes could become a thing of the past

They have a combined deficit of £45billion and are under “unmanageable” financial stress, the institute said.

In Britain, there are more than 6,000 defined benefit schemes, which have about 11 million members.

They work on the basis that the employer promises to pay a pension on a proportion of the final salary to the member or their spouse.

It could take 20 years – with pensioners dying and funds closing to new members – before the situation stabilises.

Pensions Minister Baroness Altmann said firms had funding shortfalls in their pension schemes partly as a result of the current climate of low interest rates.

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The funding crisis is set to last for 20 years

Obviously any pension fund is as good as the employer that runs it. We wouldn’t want people to be frightened about their pensions.

Baroness Altmann

She said: “Obviously any pension fund is as good as the employer that runs it. We wouldn’t want people to be frightened about their pensions. Our pensions are the best in the world.

“We certainly need to make sure these schemes are being run as well as they can be.”

But she added that pension protection was in place for employees.

She added: “The final-salary-type pensions are much more secure. The pensions are likely to be pretty generous anyway. I understand that pensioners might be concerned but these types of schemes are protected and many will get paid their pensions.”

Dan Mikulskis, co-head of investment strategy at Redington, said the growth of funds’ liabilities was higher than the growth in assets, despite ploughing in cash.

Mr Mikulskis said he believed pension funds were suffering the knock-on effects from cutting back their equity holdings, following the financial crisis.